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Business News/ Market / Mark-to-market/  Efficiency and cost rationalization measures buoy Concor
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Efficiency and cost rationalization measures buoy Concor

Concor has begun handling its own operations at terminals. This helped it contain expenses, aiding operating profits

In the domestic business, Concor has enhanced service levels and raised prices.Premium
In the domestic business, Concor has enhanced service levels and raised prices.

Container Corporation of India Ltd (Concor) has delivered a healthy performance for the March quarter. Reported numbers show flat revenues and a notable fall in profits. But the figures include the benefits of a government scheme, the revenues from which are lumpy.

Adjusted for this, revenues and operating profits grew by double-digit rates—up 12% and 21%, respectively. Profitability improved, thanks to strong volumes and measures to improve efficiency. Ebitda margins expanded 1.8 percentage points to 22.2%. Ebitda is earnings before interest, tax, depreciation and amortization.

Concor has begun handling its own operations at terminals. This helped it contain expenses, aiding operating profits. What’s more, the management expects the positive momentum to continue. It guided for volume growth of at least 10-12% in fiscal year 2019. Further, profitability is expected to remain firm despite lower lead distances. Lead distance is the average distance a unit of goods is transported.

There are several reasons for optimism. The company is set to raise prices for export-import container services this month. This should aid earnings.

Next, double stacking of containers and the resulting rationalization of costs is one of the primary reasons for the sharp rise in operating profits. Concor plans to add more high-capacity rakes in the current fiscal year through retrofitting. This will enable it to do more double stacking of containers.

In the domestic business, the company has enhanced service levels and raised prices. It began servicing new customer segments and gained market share. The benefits are clear in the March quarter financials where revenues and operating profits of the domestic business grew faster than the company average.

The management expects the domestic business to continue this momentum, aided by circuit building (where a train travels further down the network for return cargo, helping reduce empty running costs), starting of coastal shipping business (to aid domestic business volumes) and firm diesel prices (increases train operators’ competitive advantage vis-à-vis truckers).

Of course, these gains are not foolproof. Indian Railways has not raised haulage charges for some time now and it remains a key risk. Also, much of the profitability gains depend on the economies of scale and volume momentum. The traditional problem of lower exports vis-à-vis imports remains.

In domestic business, Concor continues to face cargo imbalance where originating business is not uniformly distributed across the regions. This aggravates the empty running costs. While the above mentioned profitability levers are aimed at mitigating these effects, much depends on the momentum in volumes.

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Published: 02 May 2018, 09:09 AM IST
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